Good Times Restaurants Inc (GTIM) 2020 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Good Times Restaurants Inc. Fiscal 2020 Third Quarter Earnings Call. By now, everyone should have access to the company's earnings release, which is available in the Investors section of the company's website.

As a reminder, a part of today's discussion will include forward-looking statements within the meaning of federal securities laws. These forward-looking statements are not guarantees of future performance and, therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect and, therefore, investors should not place undue reliance on them, and the company undertakes no obligation to update these statements to reflect the events or circumstances that might arise after this call. The company refers you to their recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial conditions, including risks related to the COVID-19 pandemic.

Lastly, during today's call, the company will discuss non-GAAP measures, which, they believe, can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliation to comparable GAAP measures available in our earnings release.

And now I would like to turn the call over to Ryan. Please go ahead, sir.

Thank you, Grant. I would like to thank all of you for joining us on the call today. The past few months have been interesting to say the least, and I'd like to start by offering my thanks to the entire team here at Good Times, including our hourly and management team members at both our Good Times and Bad Daddy's restaurants as well as our restaurant support team.

I'm so thankful to work with the team with such capability and grit. Though an unprecedented challenge to the business, this pandemic has served as a catalyst to help bind the team and align us towards a common goal of developing relevant restaurant concepts and operating those restaurants profitably.

At the outset of the pandemic here in the U.S., we took immediate actions, as we discussed on our last call. Throughout the quarter, as our sales increased and conditions improved and upon the receipt of PPP funds, we restored pay to employees, rehired individuals to handle our increased sales, but also used the opportunity to make permanent changes in our business that would benefit us in the long run.

One good example of this is with our menu at Bad Daddy's. Upon resuming dining room service, we initially retained a very condensed menu that served us well in a carry-out and delivery-only model. Recently, though, we've added back a few items to our menu, such as our signature deviled eggs, our house-made black bean burger and our bacon queso based upon customer demand. We additionally added salmon and Beyond Meat patties to round out our protein options and mac-and-cheese as a side item, which had been tested successfully prepandemic and was originally scheduled to launch in April.

At the same time, we've made the decision to forgo returning items to the menu, such as our house-made slaw, shoestring fries and tuna patties, which were all labor-intensive and very low indexing in sales. And while we're being very conscientious about adding labor-intense items to our menu at Bad Daddy's, our focus on our craft and our house-made ingredients remains. We still hand-cut our traditional fries, hand-bread our fried chicken and make our house-made American cheese all inside the 4 walls.

At Good Times, we've seen strong sales as a result of customer preference for the safety and speed of the drive-through. And those sales increases have translated into stronger leveraging of labor and rents. We have worked to simplify our menu at Good Times with the goal of improving our drive-through speed performance, and though we had made some strides there, more work remains to be done.

Despite record levels of unemployment, we found hiring to staffing part still to be challenging, which, although translating into stronger margins, caused us to fall short of our drive-through speed performance skills during the quarter.

We continue to believe that speed, coupled with a high-quality product, is essential to Good Times' long-term sales and traffic growth. Rather than expanding our menu significantly, we believe that having a focused core menu of differentiated items that we can execute lights-out is the right long-term strategy.

We've continued with our media mix heavily weighted towards radio, though our increasingly testing digital advertising approaches, including more targeted social advertising. Throughout the quarter, we were able to keep our beef supply in check. And though we are committed to serving fresh beef, we did build frozen safety stock of our custom grind for each concept as insurance in case of processing plant shutdowns or ordering shortfalls.

Pricing escalated significantly through the quarter, and though moderating somewhat remains elevated compared to long-term price levels. We've redesigned our staffing models, so both concepts will be more efficient than they were previously. Our June quarter includes a significant portion of time when our dining rooms were closed completely at Bad Daddy's and, therefore, with significantly reduced service staff and with reduced staffing at Good Times that accompanied the hiring challenges.

Rehiring that staff as our dining rooms opened and increasing staff at Good Times as our sales increased to better achieve our speed targets have moderately increased our labor costs from the third quarter. If we were to temporarily revert to a delivery and carry-out model again under government regulations, we would likely retain a greater number of staff than we did in the June quarter to eliminate the operational challenges that accompanied rehiring positions.

Let's review this quarter's results. At Bad Daddy's, restaurant sales during the quarter were $14.9 million compared to $21.1 million during last year's third quarter. We had approximately 52 more store weeks this quarter versus the same quarter last year, offset by reduced traffic accompanying closed and reduced capacity dining rooms associated with the COVID-19 pandemic. 31 Bad Daddy's were in the comp base at the end of the quarter, and same-store sales decreased 36.7% for the quarter.

Cost of sales at Bad Daddy's were 26.4% for the quarter, a 240 basis point decrease from last year's quarter and the result of higher-average menu pricing associated with a greater share of sales through our third-party delivery services and lower year-over-year beef pricing in April and May, offset by higher year-over-year beef pricing during the month of June. Bad Daddy's labor costs decreased by approximately 510 basis points compared to the prior year quarter to 32.1% for the quarter. This year-over-year decrease is primarily due to reduced hourly staffing levels accompanying the closure of dining rooms and the reduction of management staffing levels in our Bad Daddy's restaurants.

Overall, restaurant-level operating profit, a non-GAAP measure, for Bad Daddy's was $2.3 million for the quarter or 15.4% of sales compared with $3.4 million or 16.0% last year. This is due to a combination of sales deleverage and a higher mix of delivery sales, driving increased delivery commissions, partially offset by improvements in cost of sales and labor.

Restaurant sales at Good Times increased to $9.3 million, driven by the strong positive comparable sales during the months of May and June, partially offset by initial sales declines during the month of April. Overall same-store sales increased 11.9% for the quarter.

Food and packaging costs for Good Times were 30.1% for the quarter, a decrease of 30 basis points compared to last year's quarter. As we discussed last quarter, Good Times has continued to benefit from higher menu pricing and improvements in product waste.

Similar to our comments on Bad Daddy's, beef pricing increased throughout the quarter and remains elevated during our fourth fiscal quarter. Total labor costs for Good Times decreased to 28.1% from 34.9% for the quarter last year. This is the result of leveraging increased sales, our focus on staffing for volume and our speed of execution focus, which has improved labor productivity as well as the benefit of a slight level of understaffing relative to our staffing model.

Good Times' restaurant-level operating profit increased nearly $1.1 million for the quarter as a percent of sales the restaurant-level operating profit increased by 950 basis points versus last year to 27.2% as a percent of sales, due primarily to higher sales accompanied by lower cost of sales, lower cost of labor, partially offset by higher costs associated with delivery commissions.

General and administrative expenses were $1.7 million during the quarter or 6.9% as a percent of total revenues. This represents a decrease of approximately $0.4 million versus the prior year quarter and a 20 basis point decrease on a percent of sales basis.

This quarter's G&A expenses decreased due to larger spans of controls at Bad Daddy's, lower manager training costs as well as reduced restaurant support center staffing compared to the prior year. As a percent of sales, these nominal decreases were partially offset by the deleveraging impact of lower overall sales.

We recorded the impairment of long-lived assets of approximately $0.9 million related to 1 Bad Daddy's restaurant, where restaurant sales did not recover to our expected level after reopening dining rooms.

Our net income for the quarter was $0.2 million versus net income of $0.5 million in the second quarter -- or in the third quarter last year. Despite significantly lower sales, the improvements in operating efficiencies allowed us to deliver only slightly lower income than the prior year quarter and adjusted for the impairment charge during this year's quarter, elevated income compared to the prior year.

We finished the quarter with $12.7 million in cash and $9.9 million drawn against our credit facility with Cadence Bank as well as $11.6 million in Paycheck Protection Program loans.

Our net debt of $8.9 million represents a decrease of $3.8 million compared to the end of the prior quarter. We had approximately $0.6 million of rent either associated with short-term deferrals or unpaid pending negotiations with landlords at the end of the quarter. This pandemic has likely changed our industry permanently, and restaurant concepts and operators will need to continue to adapt quickly. The safety of our customers and of our employees is paramount to us. We have rapidly adapted our operations as knowledge of the virus changes and as new recommendations are made.

Further, we continue to evaluate customer feedback and assess customer behavior to adjust our operations in both of our concepts to ensure that we are meeting or exceeding their expectations during the ongoing pandemic and in a post-pandemic world.

With that, we'll open the call for questions.

(Operator Instructions) Looks like we have a question here from [James Benjamin], who's a private investor.

I just had a couple of quick questions. Regarding the PPP loans, do you have any idea as to how long the process is to whether or not you'll be able to forgive a portion or possibly all of that balance?

I'd say the easy answer to that would be no. The rules continue to evolve. And I think, although SBA and treasury is getting closer to be able to accept applications for that, a lot depends on the individual banks and their process with that. So unfortunately, I don't have much more to say on that.

Understood. So one more. So I guess going forward, I can appreciate things are changing on maybe even a weekly or a daily basis. How do you feel about whether or not you can actually operate at least cash flow breakeven or cash flow positive, maybe on a unit or on an overall level going forward?

Well, I think under the conditions that exist right now, the results for the quarter, we certainly were cash flow positive. And I think we would expect to be able to continue that pace to the extent dining rooms are allowed to remain open. I think that's the big question. And it'd be more challenging if dining rooms were closed. But I think we would do our best to be able to preserve cash and have a minimum cash burn if dining rooms were closed again.

Okay. For what it's worth, I've been a shareholder now for about 4 years. So I love seeing the 8-K this afternoon. I think you did a hell of a job given the economy. So thank you for all you guys are doing. I think you're holding up very, very well.

Thank you. Appreciate the comments.

(Operator Instructions) Well, I'm showing no further questions at this time. So this will conclude our question-and-answer session. I would like to turn the conference back over to Ryan Zink for any closing remarks.

Thank you. Once again, I'd like to thank our team members and the leadership within our company for their amazing attitudes, their dedication and their stellar performance as we've continued to provide amazing food and genuine hospitality to our guests at both concepts during these unique times.

With that, we'll conclude today's call. Thank you all for joining us today. Please stay safe and healthy.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.